ACCT FINAL

What are the 5 payroll deductions? As a result of these deductions, companies withhold from employee paychecks amounts that must be _____ to other parties. The company therefore incurred a _______ to pay these third parties and must report this liability in its balance sheet.

(1) Insurance, Pensions, and/or Union dues (2) FICA Taxes (3) Federal Income Tax (4) State and City Income Taxes (5) Charity As a result of these deductions, companies withhold from employee paychecks amounts that must be paid to other parties. The company therefore incurred a liability to pay these third parties and must report this liability in its balance sheet.

What are some of the ownership rights of stockholders?

(1) Vote for board of directors (2) share in corporate earnings (dividends (3) keep same % ownership when new shares issued (preemptive right) (4) share in assets upon liquidation

what are the 2 primary objectives in accounting for the issuance of common stock?

(1) to identify the specific sources of paid-in capital and (2) to maintain the distinction between paid-in capital and retained earnings

for a corporation to pay a cash dividend, it must have the following 3 things

1) adequate cash 2) credit balance in retained earnings 3) dividends have to be declared (authorized)

What are some reasons why a corporation would issue stock dividends?

1) conserve company cash 2) increase number of shares in the market to slightly decrease market price

what are the 5 issues in accounting for notes receivable:

1) determining maturity date 2) calculating interest (PRT) 3) journal entries for issuance of note and interest 4) valuing N/R- same as A/R 5) disposing of N/R

what are the three assumed cost flow methods?

1) first in, first out (FIFO) 2) last in, last out (LIFO) 3) average cost

what are some of the controller's main duties?

1) maintains the accounting records 2) maintains an adequate system of internal control 3) prepares financial statements, tax returns, and internal reports

the stockholders equity section of the balance sheet includes:

1) paid-in (contributed) capital 2) retained earnings

4 advantages of leasing an asset versus purchasing it:

1) reduced risk of obsolescence 2) little or no down payment 3) shared tax advantages 4) assets and liabilities not reported (maybe)

give some of the unearned revenue and revenue accounts: (3 of them)

1) unearned ticket revenue and ticket revenue 2) unearned subscription revenue and subscription revenue 3) unearned rental revenue and rental revenue

how do companies account for unearned revenues that are received before goods are delivered or services performed?

1) when the company receives an advance, it increases (debits) cash and increases (credits) a current liability account identifying the source of the unearned revenue 2) when the company recognizes revenue, it decreases (debits) the unearned revenue account and increases (credits) a revenue account

3 points about transaction analysis: • The Accounting Equation must always ________ • Each transaction has a _______ (double-sided) effect on the equation • Two or more accounts are ________ by a transaction

3 points about transaction analysis: • The Accounting Equation must always balance • Each transaction has a dual (double-sided) effect on the equation • Two or more accounts are impacted by a transaction

Forming a Corporation: What is a charter? It is to the company's ______ to incorporate in a state whose laws are favorable to the corporate form of business organization

A document that describes a corporation's name and purpose, types of stock and number of shares authorized, names of individuals involved in the formation, and number of shares each individual has agreed to purchase It is to the company's advantage to incorporate in a state whose laws are favorable to the corporate form of business organization

A service organization records a receivable when it performs service on _______

A service organization records a receivable when it performs service on account

Ability to Acquire Capital (money): It is relatively easy for a corporation to obtain capital through the ______ (______) of stock

Ability to Acquire Capital (money): It is relatively easy for a corporation to obtain capital through the issuance (sell) of stock

Accounting for Bond Issues: A corporation records bond transactions when it _______ (sells) or ________ (buys back) bonds and when bondholders convert bonds into common stock. Bonds may be issued at face value, below face value (_______), or above face value (________). Bond prices for both new issues and existing bonds are quoted as a _______ of the face value of the bond. (Ex: a $1000 bond with a quoted price of 97 means the selling price of the bond is 97% of face value, or $970)

Accounting for Bond Issues: A corporation records bond transactions when it issues (sells) or redeems (buys back) bonds and when bondholders convert bonds into common stock. Bonds may be issued at face value, below face value (discount), or above face value (premium). Bond prices for both new issues and existing bonds are quoted as a percentage of the face value of the bond. (Ex: a $1000 bond with a quoted price of 97 means the selling price of the bond is 97% of face value, or $970)

Accrual-Basis Accounting: Transactions recorded in the periods in which the events __________ Revenues are recognized when _______, even if cash was not received Expenses are recognized when ______, even if cash was not paid

Accrual-Basis Accounting: Transactions recorded in the periods in which the events occur Revenues are recognized when performed, even if cash was not received Expenses are recognized when incurred, even if cash was not paid

Additional Taxes: Corporations must pay ______ and ______ taxes as a separate legal entity In addition, stockholders are _______ to pay taxes on cash dividends Thus, many argue that corporate income is taxes _______ (double taxation)-once at the corporate level and again at the individual level

Additional Taxes: Corporations must pay federal and state taxes as a separate legal entity In addition, stockholders are required to pay taxes on cash dividends Thus, many argue that corporate income is taxes twice (double taxation)-once at the corporate level and again at the individual level

All necessary costs incurred in making land ready for its ______ use increases (_______) the land account

All necessary costs incurred in making land ready for its intended use increases (debit) the land account

What is an S corporation?

Allows for legal treatment as a corporation but tax treatment as a partnership -- that is, no double taxation

Although Discount on Bonds Payable has a debit balance, it is not an asset. Rather it is a _____ account, which is deducted from bonds payable on the balance sheet.

Although Discount on Bonds Payable has a debit balance, it is not an asset. Rather it is a contra account, which is deducted from bonds payable on the balance sheet.

How does amortizing the discount affect interest expense?

Amortization of the discount increases the amount of interest expense reported each period

As the declaration date, the corporation increases (_______) Stock Dividends for the fair value of the stock issued, increases (_______) Common Stock Dividends Distributable for the par value of the dividend shares (5,000 × $10), and increases (credits) the excess over par (5,000 × $5) to an additional paid-in capital account.

As the declaration date, the corporation increases (debits) Stock Dividends for the fair value of the stock issued, increases (credits) Common Stock Dividends Distributable for the par value of the dividend shares (5,000 × $10), and increases (credits) the excess over par (5,000 × $5) to an additional paid-in capital account.

As the discount is amortized, its _______ declines. As a consequence, the carrying value of the bonds will ________, until at maturity the carrying value of the bonds _________ their face amount.

As the discount is amortized, its balance declines. As a consequence, the carrying value of the bonds will increase, until at maturity the carrying value of the bonds equals their face amount.

As the premium is amortized, its _______ declines. As a consequence, the carrying value of the bonds will ______, until at maturity the carrying value of the bonds _______ their face amount.

As the premium is amortized, its balance declines. As a consequence, the carrying value of the bonds will decrease, until at maturity the carrying value of the bonds equals their face amount.

Companies record goodwill only when there is an ______ transaction that involves the purchase of an entire business. When an entire business is purchased, goodwill is the excess of cost over the ____ value of the net assets (assets less liabilities) acquired.

Companies record goodwill only when there is an exchange transaction that involves the purchase of an entire business. When an entire business is purchased, goodwill is the excess of cost over the fair value of the net assets (assets less liabilities) acquired.

Companies record intangible assets at _____. Intangibles are categorized as having either a _______ life or an ________ life. If the intangible has a limited life, the company allocates its cost over the asset's useful life using a process similar to _______. What is this process?__________ Define it:

Companies record intangible assets at cost. Intangibles are categorized as having either a limited life or an indefinite life. If the intangible has a limited life, the company allocates its cost over the asset's useful life using a process similar to depreciation. What is this process? Amortization Define it: is the process of allocating the cost of the intangible asset to expense.

Companies show treasury stock as a _______ from total paid-in capital and retained earnings in the stockholders' equity section of the balance sheet. thus the acquisition of treasury stock ______ stockholders' equity

Companies show treasury stock as a deduction from total paid-in capital and retained earnings in the stockholders' equity section of the balance sheet. thus the acquisition of treasury stock reduces stockholders' equity

Companies usually record research and development costs as an ______ when incurred, whether the R&D is successful or not.

Companies usually record research and development costs as an expense when incurred, whether the R&D is successful or not.

Continuous Life: Since a corporation is a separate legal entity, its continuance as a going _______ is not affected by the withdrawal, death, or incapacity of a stockholder, employee, or officer.

Continuous Life: Since a corporation is a separate legal entity, its continuance as a going concern is not affected by the withdrawal, death, or incapacity of a stockholder, employee, or officer.

Corporation Management: Although stockholders legally own the corporation, they manage it _______ through a board of directors the elect The chief accounting officer is the _______

Corporation Management: Although stockholders legally own the corporation, they manage it indirectly through a board of directors the elect The chief accounting officer is the controller

Cost is measured by the cash paid in a cash transaction or by the cash _______ price paid when companies use noncash assets in payment.

Cost is measured by the cash paid in a cash transaction or by the cash equivalent price paid when companies use noncash assets in payment

Costs that are annually recurring (________) and do not benefit future periods, such as costs of motor vehicle licenses and accident insurance are NOT included in the cost of equipment. They are treated as _________.

Costs that are annually recurring (insurance) and do not benefit future periods, such as costs of motor vehicle licenses and accident insurance are NOT included in the cost of equipment. They are treated as expenses.

Current maturities of long-term debt: Companies often have a portion of long-term debt that comes due in the ______ year. Companies often identify current maturities of long-term debt on the balance sheet as long-term debt due within _____ _____

Current maturities of long-term debt: Companies often have a portion of long-term debt that comes due in the current year Companies often identify current maturities of long-term debt on the balance sheet as long-term debt due within one year

Declining Balance: The depreciation rate remains ______ from year to year, but the book value to which the rate is applied ______ each year. *declining balance method ignores _____ ______ in determining the amount to which the rate is applied. But, depreciation stops when the asset's book value = expected salvage value book value for year 1 = cost of the ______ book value in subsequent years, is the difference between _____ and accumulated depreciation at the beginning of the year.

Declining Balance: The depreciation rate remains constant from year to year, but the book value to which the rate is applied declines each year. *declining balance method ignores salvage value in determining the amount to which the rate is applied. But, depreciation stops when the asset's book value = expected salvage value book value for year 1 = cost of the asset book value in subsequent years, is the difference between cost and accumulated depreciation at the beginning of the year.

Depreciation and Income Taxes: The IRS does not require the taxpayer to use the same depreciation method on the tax return that it uses in preparing _______ statements. Many large corporations use straight line in their financial statements in order to maximize ______ ______; at the same time, they use a special accelerated-depreciation method on their tax returns in order to minimize their ______ ______ Companies must disclose the choice of depreciation method in their financial statements or in related ______ that accompany the statements

Depreciation and Income Taxes: The IRS does not require the taxpayer to use the same depreciation method on the tax return that it uses in preparing financial statements. Many large corporations use straight line in their financial statements in order to maximize net income; at the same time, they use a special accelerated-depreciation method on their tax returns in order to minimize their income taxes Companies must disclose the choice of depreciation method in their financial statements or in related notes that accompany the statements

Equipment: assets used in operations, such as office furniture, factory ____ and delivery trucks

Equipment: assets used in operations, such as office furniture, factory machinery and delivery trucks

Except for land, plant assets _______ in service potential (ability to produce revenue) over their useful lives

Except for land, plant assets decline in service potential (ability to produce revenue) over their useful lives

Revenue Expenditures

Expenditures that are immediately charged against revenues as an expense

Capital Expenditures

Expenditures that increase the company's investment in plant assets

Financial Statement Presentation of Long-Lived Assets: Usually companies show plant assets in the financial statements under "Property, ______ and equipment," and they show intangibles _______ under "Intangible Assets." Intangibles do not usually use a contra asset account like the contra asset account Accumulated Depreciation used for plant assets. Instead, companies record _______ of intangibles as a direct decrease (credit) to the asset account.

Financial Statement Presentation of Long-Lived Assets: Usually companies show plant assets in the financial statements under "Property, plant and equipment," and they show intangibles separately under "Intangible Assets." Intangibles do not usually use a contra asset account like the contra asset account Accumulated Depreciation used for plant assets. Instead, companies record amortization of intangibles as a direct decrease (credit) to the asset account.

For each transaction, ______ must equal _________

For each transaction, debits must equal credits

Government Regulations: Publicly held corporations must disclose their financial affairs to the _______ _______ ______ (SEC) through quarterly and annual reports

Government Regulations: Publicly held corporations must disclose their financial affairs to the Securities Exchange Commissions (SEC) through quarterly and annual reports

In addition to the liabilities incurred as a result of _______, employers also incur a second type of payroll-related liability. with every payroll, the employer incurs liabilities to pay various _____ levied upon the employer

In addition to the liabilities incurred as a result of withholdings, employers also incur a second type of payroll-related liability. with every payroll, the employer incurs liabilities to pay various taxes levied upon the employer

Land Improvements: Structural ________ made to land, such as driveways, parking lots, fences, landscaping, and underground sprinklers.

Land improvements: Structural additions made to land, such as driveways, parking lots, fences, landscaping, and underground sprinklers. *man made things

Leasing: contractual agreement in which the owner of an asset (the ______) allows another party the (the _____) to use the asset for a period of time at an agreed price

Leasing: contractual agreement in which the owner of an asset (the lessor) allows another party the (the lessee) to use the asset for a period of time at an agreed price

Limited liability of Stockholders: Even in the event of bankruptcy of the corporation, stockholders' losses are generally limited to the amount of _____ (_____) they have invested in the corporation

Limited liability of Stockholders: Even in the event of bankruptcy of the corporation, stockholders' losses are generally limited to the amount of capital (money) they have invested in the corporation

What are some other forms of organization?

Limited partnerships, limited liability partnerships, and limited liability companies

Why are adjusting entries needed? Make it possible to report correct amounts on the ______ _____ and _______ ______ a company makes adjusting entries every time it prepares ___________ ______ includes one _______ ______ account and one _____ _____ account needed to ensure that the ______ ______ and ______ _______ principles are followed

Make it possible to report correct amounts on the balance sheet and income statement a company makes adjusting entries every time it prepares financial statements includes one income statement account and one balance sheet account needed to ensure that the revenue recognition and expense recognition principles are followed

Once cost is established, it becomes the basis of accounting for the plant asset of its ______ life

Once cost is established, it becomes the basis of accounting for the plant asset of it useful life

Plant assets are also called property, ______, and equipment

Plant assets are also called property, plant, and equipment

Preferred stockholders have the right to share in the _______ of corporate income before common stockholders. The first claim to dividends does not, however, ______ dividends.

Preferred stockholders have the right to share in the distribution of corporate income before common stockholders. The first claim to dividends does not, however, guarantee dividends.

define goodwill

Represents the value of all favorable attributes that relate to a company that are not attributable to any other specific asset.

Retirement of Plant Assets: Companies simply retire, rather than _____, some assets at the end of their useful life. Companies record retirement of an asset as a special case of disposal where no _____ is received. They ________ (debit) Accumulated Depreciation for the full amount of depreciation taken over the life of the asset and _______ (credit) the asset account for the original cost of the asset. The loss (a gain is not possible on a retirement) is ______ to the asset's book value on the date of retirement.

Retirement of Plant Assets: Companies simply retire, rather than sell, some assets at the end of their useful life. Companies record retirement of an asset as a special case of disposal where no cash is received. They decrease (debit) Accumulated Depreciation for the full amount of depreciation taken over the life of the asset and decrease (credit) the asset account for the original cost of the asset. The loss (a gain is not possible on a retirement) is equal to the asset's book value on the date of retirement.

Revising Periodic Depreciation: When a change in an estimate is required, the company makes the change in current and future years, but not to ______ periods To determine the new annual depreciation expense, the company first computes the asset's ________ cost at the time of the revision. It then allocates the revised depreciable cost to the remaining useful life.

Revising Periodic Depreciation: When a change in an estimate is required, the company makes the change in current and future years, but not to prior periods To determine the new annual depreciation expense, the company first computes the asset's depreciable cost at the time of the revision. It then allocates the revised depreciable cost to the remaining useful life. (divides new depreciable cost by remaining useful life)

Sale of Plant Assets: In a disposal by sale, the company compares the book value of the asset with the ________ received from the sale. If the proceeds from the sale _______ the book value of the plant asset, a ______ on disposal occurs. If the proceeds are less than book value, a _____ on disposal occurs.

Sale of Plant Assets: In a disposal by sale, the company compares the book value of the asset with the proceeds received from the sale. If the proceeds from the sale exceed the book value of the plant asset, a gain on disposal occurs. If the proceeds are less than book value, a loss on disposal occurs.

Separate Legal Existence: As an entity separate and distinct from its _______, the corporation acts under its own name rather than in the name of its stockholders

Separate legal existence: As an entity separate and distinct from its owners, the corporation acts under its own name rater than in the name of its stockholders

Some companies issue no-par stock with a _____ value. for accounting purposes, companies treat the stated value in the same was as the ______ value

Some companies issue no-par stock with a stated value. for accounting purposes, companies treat the stated value in the same was as the par value

The Premium on Bonds Payable is added to the bonds payable amount on the ______ _______.

The Premium on Bonds Payable is added to the bonds payable amount on the balance sheet

The cost of intangible assets with indefinite lives should ____ be amortized. (Example: Coca-Cola name)

The cost of intangible assets with indefinite lives should not be amortized. (Example: Coca-Cola name)

The cost of land includes: 1) The cash _____ price 2) _______ costs such as title and attorney's fees 3) Real estate brokers' ________ 4) Accrued property _____ and other liens on the land assumed by the purchaser

The cost of land includes: 1) The cash purchase price 2) Clothing costs such as title and attorney's fees 3) Real estate brokers' commissions 4) Accrued property taxes and other liens on the land assumed by the purchaser

The distinction is important; it has immediate and often material implications for the __________ _________. Some companies, in order to boost revenues, have ______ capitalized expenditures that they should have expensed. Thus, determining which costs to capitalize and which to ______ is very important.

The distinction is important; it has immediate and often material implications for the income statement. Some companies, in order to boost revenues, have improperly capitalized expenditures that they should have expensed. Thus, determining which costs to capitalize and which to expense is very important.

The historical cost principle requires that companies record plant assets at ______. Cost consists of ____ expenditures necessary to acquire an _____ and make it read for its intended use.

The historical cost principle requires that companies record plant assets at cost. Cost consists of all expenditures necessary to acquire an asset and make it ready for its intended use. purchase price, freight costs, installation costs, etc.

The initial cost of a patent is the ______ or cash equivalent price paid to acquire the patent. If the owner incurs legal costs in successfully defending the patent, the owner adds these costs to the Patent account and ________ them over the remaining life of the patent.

The initial cost of a patent is the patent or cash equivalent price paid to acquire the patent. If the owner incurs legal costs in successfully defending the patent, the owner adds these costs to the Patent account and amortizes them over the remaining life of the patent.

The issuance of bonds below face value causes the total cost of borrowing to _____ from the bond interest paid. That is, the issuing corporation not only must pay the _________ interest rate over the term of the bonds, but also must pay the face value (rather than issuance price) at maturity.

The issuance of bonds below face value causes the total cost of borrowing to differ from the bond interest paid. That is, the issuing corporation not only must pay the contractual interest rate over the term of the bonds, but also must pay the face value (rather than issuance price) at maturity.

The original paid-in capital account, Common Stock, would not be affected because the _______ of issued shares does not change.

The original paid-in capital account, Common Stock, would not be affected because the number of issued shares does not change.

The purchase of treasury stock is generally accounted for by the _____ method. Companies increase (debit) Treasury Stock by the price paid to _______ the shares. Treasury Stock decreases by the same amount when the company later _____ the shares.

The purchase of treasury stock is generally accounted for by the cost method. Companies increase (debit) Treasury Stock by the price paid to reacquire the shares. Treasury Stock decreases by the same amount when the company later sells the shares.

The sale of bonds above face value causes the total cost of borrowing to be ____ than the bond interest paid because the borrower is not required to pay the bond premium at the maturity date of the bonds. Thus, the premium is considered to be a _______ in the cost of borrowing that ________ bond interest expense over the life of the bonds.

The sale of bonds above face value causes the total cost of borrowing to be less than the bond interest paid because the borrower is not required to pay the bond premium at the maturity date of the bonds. Thus, the premium is considered to be a reduction in the cost of borrowing that reduces bond interest expense over the life of the bonds.

The ______ has custody of the corporation's funds and maintains the company's cash position

The treasurer has custody of the corporation's funds and maintains the company's cash position

Therefore, the difference between the issuance price and the face value of the bonds (the discount) is an ________ cost of borrowing. The company records this cost as interest _______ over the life of the bonds.

Therefore, the difference between the issuance price and the face value of the bonds (the discount) is an additional cost of borrowing. The company records this cost as interest expense over the life of the bonds.

What does amortizing the discount mean?

To follow the expense recognition principle, companies allocate bond discount to expense in each period in which the bonds are outstanding.

To record amortization of an intangible asset, a company increases (debits) Amortization _______, and decreases (credits) the specific intangible asset. Intangibles are typically amortized on a ______-_____ basis.

To record amortization of an intangible asset, a company increases (debits) Amortization Expense, and decreases (credits) the specific intangible asset. Intangibles are typically amortized on a straight-line basis.

Transferable Ownership Rights: Stockholders may dispose of part or all of their interest in a corporation simply by ______ their stock. The company does not participate in the transfer of these ownership rights after the ______ sale of the capital stock

Transferable Ownership Rights: Stockholders may dispose of part or all of their interest in a corporation simply by selling their stock. The company does not participate in the transfer of these ownership rights after the original sale of the capital stock

Typically, preferred stockholders have a priority in relation to (1) ______ and (2) _____ in the event of _____. However, they sometimes do not have ______ rights

Typically, preferred stockholders have a priority in relation to (1) dividends and (2) assets in the event of liquidation. However, they sometimes do not have voting rights

Valuing Accounts Receivable: Companies report accounts receivable on the _______ sheet as an asset Determining the amount to report is sometimes difficult because some receivables will become _________

Valuing Accounts Receivable: Companies report accounts receivable on the balance sheet as an asset Determining the amount to report is sometimes difficult because some receivables will become uncollectible

When a merchandiser sells goods, it increases (debits) accounts ________ and increases (credit) sales _______ The seller may offer terms that encourage early payment by providing a _____ (this reduces accounts receivable) The buyer might find some of the goods unacceptable and choose to _______ the unwanted goods. Sales returns also reduce receivables

When a merchandiser sells goods, it increases (debits) accounts receivable and increases (credit) sales revenue The seller may offer terms that encourage early payment by providing a discount (this reduces accounts receivable) The buyer might find some of the goods unacceptable and choose to return the unwanted goods. Sales returns also reduce receivables

When bonds are redeemed before maturity, it is necessary to: 1) Eliminate the _______ value of the bonds at the redemption date 2) Record the ______ paid 3) Recognize the gain or loss on ______

When bonds are redeemed before maturity, it is necessary to: 1) Eliminate the carrying value of the bonds at the redemption date 2) Record the cash paid 3) Recognize the gain or loss on redemption

When the contractual interest rate and the market interest rate are the same, bonds sell at ______ _______. However, _______ interest rates change daily.

When the contractual interest rate and the market interest rate are the same, bonds sell at face value. However, market interest rates change daily.

define sole proprietorship

a business owned by one person

define partnership

a business owned by two or more persons associated as partners

define corporation

a company organized as a separate legal entity, with most of the rights and privileges of a person

define privately held corporation

a corporation that has only a few stockholders and whose stock is not available for sale to the general public

define publicly held corporation

a corporation that may have thousands of stockholders and whose stock is traded on a national securities market

define deficit

a debit balance in retained earnings meaning they've had net losses (not good)

units of activity

a depreciation method in which useful life is expressed in terms of the total units of production or use expected from the asset

declining balance

a depreciation method that applies a constant rate to the declining book value of the asset and procedures a decreasing annual depreciation expense over the asset's useful life

accelerated-depreciation method

a depreciation method that produces higher depreciation expense in the early years than the straight-line approach

define statement of cash flows

a financial statement that provides financial information about the cash receipts and cash payments of a business for a specific period of time

define income statement

a financial statement that reports a company's revenues and expenses and resulting net income or net loss for a specific period of time

balance sheet

a financial statement that reports the assets and claims to those assets at a specific point in time

define retained earnings statement

a financial statement that summarizes the amounts and causes of changes in retained earnings for a specific time period

define bond cerificate

a legal document that indicates the name of the issuer, the face value of the bonds, and other data such as the contractual interest rate and the maturity date of the bonds

a merchandiser records accounts receivable at the point of _______ of merchandise on account

a merchandiser records accounts receivable at the point of sale of merchandise on account

straight line

a method in which companies expense an equal amount of depreciation for each year of the asset's useful life

lessor

a party that has agreed contractually to let another party use its asset for a period at an agreed price

lessee

a party that has made contractual arrangements to use another party's asset for a period at an agreed price

a perpetual inventory system provides better _________ ______ _______ than a periodic system

a perpetual inventory system provides better control over inventories than a periodic system

define stock dividend

a pro rata (proportional to what you already have) distribution of stock to current stockholders

return on assets

a profitability measure that indicates the amount of net income generated by each dollar of assets; computed as net income divided by average assets

define auditor's report

a report prepared by an independent outside auditor stating the auditor's opinion as to the fairness of the presentation of the financial position and results of operations and their conformance with generally accepted accounting principles

define annual report

a report prepared by corporate management that presents financial information including financial statements, a management discussion and analysis section, notes, and independent auditor's report

define management discussion and analysis (MD&A)

a section of the annual report that presents management's views on the company's ability to pay near-term obligations, its ability to fund operations and expansion, and its results of operations

a stock dividend results in a _______ in retained earnings and an ______ in paid-in capital

a stock dividend results in a decrease in retained earnings and an increase in paid-in capital

Match each of the items to its proper balance sheet classification: a) salaries and wages payable b) service revenue c) interest payable d) goodwill e) debt investments (short-term) f) mortgage payable (due in 3 years) g) investment in real estate h) equipment i) accumulated depreciation-equipment j) depreciation expense k) retained earnings l) unearned service revenue

a) Current liabilities b) NA c) Current liabilities d) Intangible Assets e) Current Assets f) Long-term Liabilities g) Long-term investments h) Property, plant, & equipment i) Property, plant, & equipment j) NA k) Stockholders' equity l) Current liabilites

capital lease

accounted for like a debt financed purchase by the lessee (treated as if you bought it)

define allowance method

accounting for bad debts involves estimating uncollectible accounts at the end of each period

define full disclosure

accounting principle that dictates that companies disclose circumstances and events that make a difference to financial statement users

2 types of accruals

accrued revenues: revenues for services performed but not yet received in cash or recorded accrued expenses: expenses incurred but not yet paid in cash or recorded

through which account does depreciation affect the balance sheet

accumulated depreciation, which companies report as a deduction from plant assets

how does amortizing the premium affect interest expense?

amortization of the premium decreases the amount of interest expense reported each period

define face value/maturity value/principal value

amount of principal due at the maturity date of the bond

define authorized stock

amount of stock a corporation is authorized to sell as indicated in its corporate charter

define accounts receivable

amounts customers owe on account

define liabilities

amounts owed to creditors in the form of debts and other obligations

define historical cost

an accounting principle that states that companies should record assets at their cost

Cash equivalent price

an amount equal to the fair value of the asset given up or the fair value of the asset received, whichever is more clearly determinable

define economic entity

an assumption that every economic entity can be separately identified and accounted for

define monetary unit

an assumption that requires that only things that can be expressed in money are included in the accounting records

define periodicity

an assumption that the life of a business can be divided into artificial time periods and that useful reports covering those periods can be prepared for the business

define Certified public accountant (cpa)

an individual who has met certain criteria and is thus allowed to perform audits of corporations

define bonds

an interest-bearing notes payable issued by corporations, government, and universities

define current assets

are assets that a company expects to convert to cash or use up within one year or its operating cycle, whichever is longer

research and development costs:

are expenditures that may lead to patents, copyrights, new processes, and new products

define unsecured bonds

are issued against the general credit of the borrower

define long-term liabilites

are obligations that a company expects to pay more than one year in the future

Plant Assets

are resources that have physical substance (a definite size and shape), are used in the operations of a business, and are not intended for sale to customers

define intangible asset

are rights, privileges, and competitive advantages that result from ownership of long-lived assets that do not posses physical substance no physical substance exclusive rights/privilieges

define fair value principle

assets and liabilities should be reported at fair value (the price received to sell an asset or settle a liability)

whats on a financial statement

balance sheet, income statement, retained earnings statement, statement of cash flows

depreciable assets

because the usefulness to the company and the revenue-producing ability of each class decline over the asset's useful life

define callable bonds

bonds that are issuing company can redeem (buy back) at a stated dollar amount prior to maturity

define convertible bonds

bonds that can be converted into common stock at the bondholder's option

the two primary sources for financing activities are:

borrowing from creditors and selling shares of stock to investors

define preferred stock

capital stock that has contractual preferences over common stock in certain areas

dividends can take on 4 forms

cash, property, stock, scrip (promise to pay cash)

define retained earnings restrictions

circumstances that make a portion of retained earnings currently unavailable for dividends

why is the units of activity ideally suited for factory machinery

companies can measure production in terms of units of output or in terms of machine hours used in operating the machinery

define risk assessment

companies must identify and analyze the various factors that create risk for the business and must determine how to manage these risks

land improvements have limited useful lives, and as a result, companies ______ (depreciate) the cost of land improvements over their useful lives

land improvements have limited useful lives, and as a result, companies expense (depreciate) the cost of land improvements over their useful lives *do not depreciate land, only man made things

depreciation applies to 3 classes of plant assets

land improvements, buildings, equipment

investing activities involve the purchase of resources (assets) needed to operate the business. typical assets include:

land, building, equipment, cash, investments in debt or equity securities of another company

Depreciation does not apply to ____. WHY?

land. because its usefulness and revenue-producing ability generally remain intact as long as the land is owned

like a stock dividend, a stock split increases the _______ of shares owned by a shareholder, but it does not change the percentage of the total company that the shareholder ________ a stock split does not have any effect on ____-____ capital, retained earnings, and total stockholders' equity. however, the number of shares ______ increases. a company _____ ____ need to journalize a stock split

like a stock dividend, a stock split increases the number of shares owned by a shareholder, but it does not change the percentage of the total company that the shareholder owns a stock split does not have any effect on paid-in capital, retained earnings, and total stockholders' equity. however, the number of shares outstanding increases. a company does not need to journalize a stock split

define stock split

like a stock dividend, involves the issuance of additional shares of stock to stockholders according to their percentage ownership

fifo gives value closest to

market cost

4 assumptions in financial reporting

monetary unit, economic entity, going concern, and periodicity

net income is shown on the income statement and is added to the beginning balance of ________ _______

net income is shown on the income statement and is added to the beginning balance of retained earnings

no entry is required on the _____ date

no entry is require on the record date

what is accumulated depreciation not

not a cash fund

define notes to the financial statements

notes clarify information presented in the financial statements and provide additional detail

notes payable due for payment within one year of the balance sheet _____ are usually classified as current liabilities

notes payable due for payment within one year of the balance sheet date are usually classified as current liablities

what are some examples of current liabilities?

notes payable, accounts payable, unearned revenues, and accrued liabilities such as taxes, salaries and wages, and interest

Notes receivable give the holder a ________ legal claim to assets than do accounts receivable promissory notes are _____ instruments. what does this mean?

notes receivable give the holder a stronger legal claim to assets than do accounts receivable promissory notes are negotiable instruments. this means that when sold, the seller can transfer them to another party by endorsement

What is carrying value?

of the bonds is the face value of the bonds less unamortized bond discount or plus unamortized bond premium at the redemption date

on a stock dividend: you now own more shares of stock, but your _______ interest has not changed

on a stock dividend: you now own more shares of stock, but your ownership interest has not changed

2 main types of leases

operating lease (apartment) & capital lease (car lease)

ordinary repairs are ________ to maintenance and repairs expense> _______ _______

ordinary repairs are debited to maintenance and repairs expense > INCOME SHEET

par value has no relationship with ______ _____

par value has no relationship with market price

partnership disadvantages

partners personally liable and transfer of ownership may be difficult

6 types of intangible assets

patent, research and development, copyright, trademark, franchise, and goodwill

define dividends

payments of cash from a corporation to its stockholders

what is an impairment

permanent decline in the fair value of an asset

define cumulative dividend

preferred stock feature entitling the preferred stock shareholder to receive current and unpaid prior year dividends

2 types of deferrals

prepaid expenses: expenses paid in cash before they are used or consumed unearned revenues: cash received before services are performed

Notes Receivable: Promissory note, Maker, Payee

promissory note: written promise to pay a specific amount at a definite time maker: party promising to pay payee: party to whom payment is made

sole proprietorship disadvantages

proprietor personally liable, financing may be difficult, transfer of ownership may be difficult

define contractual interest rate (stated)

rate used to determine the amount of interest the borrower pays and the investor receives

what are a couple reasons why a corporation may acquire treasury stock?

re-issue shares to employees and reduce outstanding shares to increase earnings per share

define sarbanes-oxley act (SOX)

regulations passed by congress to reduce unethical corporate behavior

define assets

resources owned by a business

restrictions result from one or more of these causes: legal, ______, or voluntary. they are disclosed in the notes to the financial statements

restrictions result from one or more of these causes: legal, contractaul, or voluntary. they are disclosed in the notes to the financial statements

the operating activities would be

revenue, expense, net income, and net loss

sales taxes are expressed as a percentage of the sales _____

sales taxes are expressed as a percentage of the sales price

types of bonds

secured bonds, unsecured bonds, convertible bonds, callable bonds

What does amortizing the premium mean?

similar to bond discount, companies allocate bond premium to expense in each period in which the bonds are outstanding

sole proprietorship advantages

simple to establish, owner controlled, tax advantages

partnership advantages

simple to establish, shared control, tax advantages, and broader skills and resources

why is a perpetual inventory system provide better control over periodic system

since the inventory records show the quantities that should be on hand, the company can count the goods at any time to see whether the amount of goods actually on hand agrees with the inventory records

stock issue considerations: the authorization of common stock does not result in a formal accounting _______. a corporation can issue common stock ______ to investors. alternatively, it can issue common stock indirectly through an investment-banking firm that specializes in bringing securities to the _______ of prospective investors

stock issue considerations: the authorization of common stock does not result in a formal accounting entry. a corporation can issue common stock directly to investors. alternatively, it can issue common stock indirectly through an investment-banking firm that specializes in bringing securities to the attention of prospective investors

define outstanding stock

stock issued and in the hands of the stockholders treasury stock is issued but it is not outstanding stock

which computing depreciation method is most widely used

straight line depreciation

straight line method: management must choose the useful life of an asset based on its own _______ and experience The book value at the end of the useful life is equal to the ______ ______ value if an asset is purchased during the year, rather than on January 1, it is necessary to prorate the annual ______ for the portion of the year used (depreciable cost x annual rate x months/12)

straight line method: management must choose the useful life of an asset based on its own expectations and experience The book value at the end of the useful life is equal to the estimated salvage value if an asset is purchased during the year, rather than on January 1, it is necessary to prorate the annual depreciation for the portion of the year used (depreciable cost x annual rate x months/12)

what are the 3 methods for computing depreciation

straight line, declining balance, units of activity

why isn't the units of activity method suited for this?

such assets as buildings or furniture because activity levels are difficult to measure for these assets

define common stock

term used to describe the total amount paid in by stockholders for the shares they purchase

define net loss

the amount by which expenses exceed revenues

define net income

the amount by which revenues exceed expenses

define going concern

the assumption that the company will continue in operation for the foreseeable future

depreciable cost

the cost of a plant asset less its salvage value

define expenses

the cost of assets consumed or services used in the process of generating revenues

the cost of land improvements includes all expenditures necessary to make the improvements _____ for their intended use. Costs increase (______) land improvement account

the cost of land improvements includes all expenditures necessary to make the improvements ready for their intended use. costs increase (debit) land improvement account

the cumulative effect of the declaration and payment of a cash dividend on a company's financial statements is to _______ both stockholders' equity and total assets

the cumulative effect of the declaration and payment of a cash dividend on a company's financial statements is to decrease both stockholders' equity and total assets

the current market price (present value) of a bond is a function of 3 factors: 1) the ____ ______ to be received 2) the length of _____ until the amounts are received 3) the market ______ rate

the current market price (present value) of a bond is a function of 3 factors: 1) the dollar amounts to be received 2) the length of time until the amounts are received 3) the market interest rate

the current market price of a bond is ______ to the present value of all the future cash payments promised by the bond

the current market price of a bond is equal to the present value of all the future cash payments promised by the bond

define maturity date

the date on which the final payment on a bond is due from the bond issuer to the investor

the declaration of cash dividend commits the corporation to a binding ______ obligation

the declaration of cash dividend commits the corporation to a binding legal obligation

define discount (on a bond)

the difference between the face value of a bond and its selling price when a bond is sold for less than its face value

define premium (on a bond)

the difference between the selling price and the face value of a bond when a bond is sold for more than its face value

under the allowance method, a company debits _____ bad debt write-off to the ______ account and ____ to bad debt expense a write-off affects only _____ sheet accounts

under the allowance method, a company debits every bad debt write-off to the allowance account and not to bad debt expense a write-off affects only balance sheet accounts

under units of activity, the amount of depreciation is proportional to the ________ that took place during that period

under units of activity, the amount of depreciation is proportional to the activity that took place during that period

corporation disadvantage

unfavorable tax treatment

define external users

users who are outside the organization

define internal users

users within the organization

cost

we explained the considerations that affect the cost of a depreciable asset. remember that companies record plant assets at cost, in accordance with the historical cost principle

whatever the disposal method, the company must determine the ______ value of the plant asset at the time of disposal in order to determine the gain or loss

whatever the disposal method, the company must determine the book value of the plant asset at the time of disposal in order to determine the gain or loss

when a corporation issues (sells) bonds, it is ________ money. the person who buys the bonds (the bondholder) is _______ in bonds

when a corporation issues (sells) bonds, it is borrowing money. the person who buys the bonds (the bondholder) is invensting in bonds

what is a net loss

when expenses exceed revenues

define copyright and what copyright consists of:

which give the owner the exclusive right to reproduce and sell an artistic or published work. consists of the cost of acquiring and defending it

define notes receivable

written promise (as evidenced by a formal instrument) for amounts to be received

define dividends in arrears

years in which dividends were not declared

Companies dispose of plant assets that are no longer _______ to them. what are three ways in which companies make plant asset disposals?

Companies dispose of plant assets that are no longer useful to them. sale, retirement, exchange

market value=

current selling price

define payment date

date payments are made to stockholders

define declaration date

date that the board of directors authorizes and announces a dividend

define record date

date the company determines ownership of the outstanding shares

debts that do not meet both criteria are ____-____ liablities

debts that do not meet both criteria are long-term liablities

three dates are important in connection with dividends and they are....

declaration date, record date, payment date

2 types of adjusting entries

deferrals and accruals

depreciation is a cost _______ process, not an asset valuation process. no attempt is made to measure the change in an asset's _____ value during ownership. thus, the book value and fair value of a plant asset may _______ signficantly

depreciation is a cost allocation process, not an asset valuation process. no attempt is made to measure the change in an asset's fair value during ownership. thus, the book value and fair value of a plant asset may differ signficantly

what is a dividend

distribution to stockholders on a proportionate (pro rata) basis

dividends in arrears are ____ considered a liability. no _______ exists until the board of directors formally "declares" that the corporation will pay a dividend

dividends in arrears are not considered a liability. no obligation exists until the board of directors formally "declares" that the corporation will pay a dividend

during a depreciable asset's useful life, its revenue-producing ability declines because of ____ and _____. it may also decline because of obsolescence.

during a depreciable asset's useful life, its revenue-producing ability declines because of wear and tear. it may also decline because of obsolescence.

corporation advantages

easy to transfer ownership, greater capital raising potential, and lower legal liability

Define and give examples of ordinary repairs

expenditures (costs) to maintain an asset

Expenditures for additions and improvements usually increase the company's investment in productive facilities and are generally ________ to the plant asset affected. thus, they are capital _______. >____ _____

expenditures for additions and improvements usually increase the company's investment in productive facilities and are generally debited to the plant asset affected. thus, they are capital expenditures> Balance sheet

what is the units of activity method ideally suited for?

factory machinery

questions asked by internal users

finance, human resources, marketing, management

all business are involved in three types of activities:

financing, investing, and operating

the multiple step income statement has 3 important line items

gross profit: subtract cost of goods sold from net sales to determine gross profits income from operations: deduct operating expenses form gross profit to determine income from operations net income: add or subtract the results of activities not related to operations to determine net income

define classified balance sheet

groups together similar assets and similar liabilities, using a number of standard classifications and sections

define secured bonds

have specific assets of the issuer pledged as collateral for the bonds

lifo gives value closest to

historical cost

3 principles in financial reporting

historical cost, full disclosure, and fair value principle

if disposal occurs at any time prior to the end of the year, the company must record _______ for the fraction of the year to the date of disposal

if disposal occurs at any time prior to the end of the year, the company must record depreciation for the fraction of the year to the date of disposal

average cost gives value closest to

in between

in early years, declining-balance depreciation expense will ________ straight line, but in later years, it will be ______ than straight line

in early years, declining-balance depreciation expense will exceed straight line, but in later years, it will be less than straight line

in the past, some companies improperly _______ recording losses on impairments until a year when the impact on the company's reported results were minimized. this is known as earnings _______. to minimize this, accounting standards now require ________ loss recognition on impaired assets

in the past, some companies improperly delayed recording losses on impairments until a year when the impact on the company's reported results were minimized. this is known as earnings management. to minimize this, accounting standards now require immediate loss recognition on impaired assets

Asset turnover

indicates how efficiently a company uses its assets to generate sales; calculated as net sales divided by average total assets

interest accrues over the life of the note, and the issuer must periodically record that _______.

interest accrues over the life of the note, and the issuer must periodically record that accrual

users of financial information

internal and external users

define monitoring

internal control systems must be monitores periodically for their adequacy. significant deficiencies need to be reported to top management and/or the board of directors

questions asked by external users

investors & creditors

define franchise

is a contractual arrangement under which the franchisor grants the franchisee the right to sell certain products, to perform specific services, or to use certain trademarks or trade names, usually within a designated geographic area.

define current liability

is a debt that a company reasonably expects to pay (1) from existing current assets or through the creation of other current liabilities, and (2) within one year or the operating cycle, whichever is longe

define trademark (or trade name) and what its cost is:

is a word, phrase, jingle, or symbol that distinguishes or identifies a particular enterprise or product. The cost is the purchase price. If the company develops the trademark or trade name itself, the cost includes attorney's fees, registration fees, design costs, successful legal defense costs, and other expenditures directly related to securing it.

salvage value

is an estimate of the asset's value at the end of it's useful life for its owner.

useful life

is an estimate of the expected productive life of the asset for the owner

patent:

is an exclusive right issued by the U.S. Patent Office that enables the recipient to manufacture, sell, or otherwise control an invention for a period of 20 years from the date of the grant

define retained earnings

is net income that a company retains in the business

define cash dividend

is pro rata (proportional to ownership) distribution of cash to stockholders

obsolescence

is the process by which an asset becomes out of date before it physically wears out

define bank reconciliation

is the process of comparing the bank's balance with the company's balance, and explaining the differences to make them agree

define transaction analysis

is the process of identifying the specific effects of economic events on the accounting equation

through which account does depreciation affect the income statement

it affects the income statement though depreciation expense

define a control environment

it is the responsibility of top management to make it clear that the organization values integrity and that unethical activity will not be tolerated. this component is often referred to as the "tone at the top"

Balance Sheet Presentation: Current Liabilities are the ______ category under "liabilities" on the balance sheet. Within the current liabilities section, companies often list _____ payable first, followed by accounts ______. Companies report _____-_____ liabilities in a separate section of the balance sheet immediately following "Current Liabilities." Disclosure of _____ is very important. Summary data regarding debts may be presented in the balance sheet with detailed data (such as _______ rates, maturity dates, conversion privileges, and assets pledged as collateral) shown in a supporting schedule in the ______. Companies should report current _________ of long-term debt as a current liability.

Balance Sheet Presentation: Current Liabilities are the first category under "liabilities" on the balance sheet. Within the current liabilities section, companies often list notes payable first, followed by accounts payable. Companies report long-term liabilities in a separate section of the balance sheet immediately following "Current Liabilities." Disclosure of debt is very important. Summary data regarding debts may be presented in the balance sheet with detailed data (such as interest rates, maturity dates, conversion privileges, and assets pledged as collateral) shown in a supporting schedule in the notes. Companies should report current maturities of long-term debt as a current liability.

Balance Sheet Presentation: In the _________ _______ section of the balance sheet, companies report paid-in capital and retained earnings. within paid-in capital, two classifications recognized: 1) ______ stock, which consists of preferred and common stock. preferred stock is listed first 2) additional paid-in capital (PIC), which includes the _______ of amounts paid in over par or stated value

Balance Sheet Presentation: In the Stockholders' Equity section of the balance sheet, companies report paid-in capital and retained earnings. within paid-in capital, two classifications recognized: 1) capital stock, which consists of preferred and common stock. preferred stock is listed first 2) additional paid-in capital (PIC), which includes the excess of amounts paid in over par or stated value

Bank Reconciliation: The depositor next must record each reconciling item used to determine the _________ cash balance per books. If the company does not journalize and post these items, the _____ account will not show the correct balance.

Bank Reconciliation: The depositor next must record each reconciling item used to determine the adjusted cash balance per books. If the company does not journalize and post these items, the cash account will not show the correct balance.

Bonds are redeemed when the issuing corporation _____ them back. Regardless of the issue price of bonds, the book value of the bonds at _______ will equal their ____ value.

Bonds are redeemed when the issuing corporation buys them back. Regardless of the issue price of bonds, the book value of the bonds at maturity will equal their face value

Bonds may be redeemed _______ maturity. Why would a company decide to redeem bonds before maturity?

Bonds may be redeemed before maturity. In order to reduce interest cost and remove debt from its balance sheet. A company should redeem debt early only if it has sufficient cash resources.

Buildings: facilities used in ______ such as stores, offices, factories, warehouses, and airplane hangars.

Buildings: facilities used in operations such as stores, offices, factories, warehouses, and airplane hangars

Characteristics of a corporation: -Separate _______ existence -limited liability of ____________ -___________ ownership rights -ability to acquire ______ (_______) -continuous _______ -corporation __________ - __________ Regulations - Additional ______

Characteristics of a corporation: -Separate legal existence -limited liability of stockholders -transferable ownership rights -ability to acquire capital (money) -continuous life -corporation management - Government Regulations - Additional Taxes

Common Stock Dividends Distributable is a _________ _______ account. On the balance sheet, it is shown as an addition to common stock issued.

Common Stock Dividends Distributable is a stockholders' equity account. On the balance sheet, it is shown as an addition to common stock issued.

Companies can apply the declining balance approach at different rates, which result in varying _____ of depreciation. a common declining balance rate is _______ the straight line rate. using that rate, the method is referred to as ______ _______ _______ method

Companies can apply the declining balance approach at different rates, which result in varying speeds of depreciation. a common declining balance rate is double the straight line rate. using that rate, the method is referred to as double declining balance method

Companies charge to the buildings account all necessary expenditures relating to the purchase or ______ of a building. Companies add certain interest costs to the cost of a building and are considered as necessary as materials and labor. inclusion of interest costs in the cost of a constructed building is limited to interest costs incurred during the _______ period

Companies charge to the buildings account all necessary expenditures relating to the purchase or construction of a building. Companies add certain interest costs to the cost of a building and are considered as necessary as materials and labor. inclusion of interest costs in the cost of a constructed building is limited to interest costs incurred during the construction period

companies must use the allowance method for financial reporting purposes when bad debts are _______ in amount. it has 3 essential features: a) companies _________ uncollectible accounts receivable and ______ them against revenues in the same accounting period in which the revenues are recorded b) companies record _______ uncollectibles as an increase (debit) to bad debt expense and an increase (credit) to allowance for doubtful accounts through an adjusting entry at the end of each period. allowance for doubtful accounts is a ______ account to accounts receivable c) companies debit _________ uncollectables to allowance for doubtful accounts and credit them to accounts receivable at the time the specific account is _____ ___ as uncollectible

companies must use the allowance method for financial reporting purposes when bad debts are material in amount. it has 3 essential features: a) companies estimate uncollectible accounts receivable and match them against revenues in the same accounting period in which the revenues are recorded b) companies record estimated uncollectibles as an increase (debit) to bad debt expense and an increase (credit) to allowance for doubtful accounts through an adjusting entry at the end of each period. allowance for doubtful accounts is a contra account to accounts receivable c) companies debit actual uncollectables to allowance for doubtful accounts and credit them to accounts receivable at the time the specific account is written off as uncollectible

companies record as ______ expenses annual payments made under a franchise agreement in the period in which they are incurred

companies record as operating expenses annual payments made under a franchise agreement in the period in which they are incurred

define notes payable

companies record obligations in the form of written notes

define internal control

consists of all related methods and measures adopted within an organization to safeguard assets, enhance the reliability of accounting records, increase efficiency of operations, and ensure compliance with laws and regulations

define cost constraint

constraint that weighs the cost the companies will incur to provide the information against the benefit that financial statement users will gain from having the information available

internal control systems has 5 primary components

control environment, risk assessment, control activities, information and communication, monitoring

define treasury stock

corporation buys back its own stock

qdefine additions and improvements

costs incurred to increase operating efficiency or extend useful life

what is the most preferred stock

cumulative dividend

the following steps should reveal all the reconciling items that cause the difference between the 2 balances. Step 1: deposits in transit. Add these deposits to the balance per _____ Step 2: outstanding checks. deduct outstanding checks from the balance per the bank Step 3: errors. note any errors discovered in the previous steps and list them in the appropriate section of the reconciliation schedule. • all errors made by the depositor are reconciling items in determining the adjusted cash balance per _______. • all errors made by the bank are reconciling items in determining the adjusted cash balance per the ________. Step 4: Bank Memoranda. Trace bank memoranda to the depositor's records. The company lists in the appropriate section of the reconciliation schedule any ______ memoranda. (example of bank memoranda include bank service charges and interest earned)

the following steps should reveal all the reconciling items that cause the difference between the 2 balances. Step 1: deposits in transit. Add these deposits to the balance per bank Step 2: outstanding checks. deduct outstanding checks from the balance per the bank Step 3: errors. note any errors discovered in the previous steps and list them in the appropriate section of the reconciliation schedule. • all errors made by the depositor are reconciling items in determining the adjusted cash balance per books. • all errors made by the bank are reconciling items in determining the adjusted cash balance per the bank. Step 4: Bank Memoranda. Trace bank memoranda to the depositor's records. The company lists in the appropriate section of the reconciliation schedule any unrecorded memoranda. (example of bank memoranda include bank service charges and interest earned)

define revenue

the increase in assets or decrease in liabilities resulting from the sale of goods or the performance of services in the normal course of business

define accounting

the information system that identifies, records, and communicates the economic events of an organization to interested users

define information and communication

the internal control system must capture and communicate all pertinent information both down and up the organization, as well as communicate information to appropriate external parties

the issuance of common stock affects only _____-_____ ______ accounts

the issuance of common stock affects only paid-in capital accounts

operating lease

the lessee uses the asset of the lessor - accounted for as a rental

define stockholders' equity

the owners' claim to assets

depreciation

the process of allocating to expense the cost of a plant asset over its useful life in a rational and systematic manner

the process of finding the present value is referred to as ________ the future amounts

the process of finding the present value is referred to as discounting the future amounts

define market interest rate

the rate investors demand for loaning funds to the corporation

define time value of money

the relationship between time and money. a dollar received today is worth more than a dollar promised at some time in the future

the total amount of depreciation taken over an asset's life is the _______ no matter what approach is used

the total amount of depreciation taken over an asset's life is the same no matter what approach is used

what does the balance in accumulated depreciation represent?

the total amount of the asset's cost that the company has charged to expense to date

define double entry system

the two-sided effect of each transaction is recorded in appropriate accounts

what is units of activity generally not suited for?

the units of activity method

what is book value

the value of a security or asset as entered in a company's books

define present value

the value today of an amount to be received at some date in the future after taking into account current interest rates

define control activities

to reduce the occurrence of fraud, management must design policies and procedures to address the specific risks faced by the company

how do stock dividends affect stockholders equity???

total stockholders equity stays the same

two accounting issues associated with accounts receivable are: 1) _______ accounts receivable 2) _______ accounts receivable

two accounting issues associated with accounts receivable are: 1) recognizing accounts receivable 2) valuing accounts receivable

two criteria apply in determining the cost of equipment: 1) the _______ of the cost = one time or ________ 2) the ______ period = the life of the asset or _____ _____

two criteria apply in determining the cost of equipment: 1) the frequency of the cost = one time or recurring 2) the benefit period = the life of the asset or one year

under a perpetual inventory system, a company determines the cost of goods sold ____ _____ ___ _____ ______

under a perpetual inventory system, a company determines the cost of goods sold each time a sale occurs